Many electronic publishers, especially those who maintain World Wide Web sites, generate revenue by selling advertisements. Typically, publishers make contracts with advertisers that promise a certain number of impressions (where a viewer sees an advertisement) or clicks. Publishers may have significant flexibility about the location on the Web site, or “channel,” that advertisements are shown. In addition, many contracts are structured so that the publisher only receives revenue when a visitor actually clicks on a banner or performs an action on the advertiser website after clicking on the banner. Thus, the publisher wishes to generate as many clicks or actions as possible from his inventory. Even when the contract specifies that the publisher is paid by the number of advertising impressions served, the publisher may wish to optimize the campaign performance to demonstrate the superiority of its inventory and secure the advertising account.
Currently, the process of determining the placement of campaigns on publisher inventory is manual, tedious, and imprecise. Typically, the publisher will choose inventory for a campaign when it begins, based on experience of successful placements. Since the process of manually changing placements can be laborious, the original placements are revisited very rarely. Furthermore, it is impractical to manually test different placements for a new campaign. Thus, campaigns are often not placed optimally to begin with, and they are not dynamically adjusted to respond to changes in visitor behavior, channel availability, and the performance of other campaigns. Adherence to campaign contractual requirements requires constant vigilance; if such manual vigilance cannot be applied, then the publisher may under- or over-deliver on contracts. Such inefficiencies cost the publisher indirectly (in the form of potentially forgone revenue) or directly (in the form of penalties for contracts not met.)
There are three main types of contracts prevalent in the online advertising market: CPM, CPC, and CPA. Advertisers pay for CPM (“cost per thousand [impressions]”) contracts based on the number advertisements displayed to visitors (“impressions”). Contracts typically specify the number of impressions to be served within the contract time frame (often, one month) and sometimes specify minimum daily impression requirements as well. For such contracts, payment is made whether or not the visitor responds to the advertisement. While the publisher does not have a direct monetary incentive to deliver superior performance to a CPM customer, the publisher does receive an important indirect benefit: a successful advertising campaign on the publisher's inventory will strongly encourage future media purchases. Some CPM campaigns are “run-of-site,” meaning that the advertiser may be assigned any available publisher impressions, regardless of where on the publisher's web site those impressions might be. However, most CPM contracts stipulate that the impressions must be provided on a certain location within the web page. Advertisers typically choose locations felt to select desirable customers; for example, a travel-services company might choose to advertise in the travel section of a portal site.
Advertisers pay for CPC (“cost per click”) contracts based on the number of visitors who click on an advertisement. In this case, the publisher does not receive any compensation for advertisement impressions that do not result in a visitor click. Contracts typically specify the number of clicks to be delivered within a given time frame (e.g., one month). Clearly, such contracts provide a direct incentive to publishers to optimize the advertiser's campaign, in order to get as many clicks as possible from the available inventory. CPA (“cost per action”) contracts are very similar to CPC contracts, except that payment to the publisher is made in proportion to the number of visitors who not only click on an advertisement to visit the advertiser's site, but also complete some desirable action, such as making a purchase, signing up for a newsletter, joining a club, etc. Almost all CPC and CPA campaigns are run-of-site; as the publisher bears the responsibility to generate clicks or actions, the publisher retains the right to place advertisements on various locations as it sees fit. However, for some CPC and CPA campaigns the publishers may be forced to show ads on particular locations on the site.
While publishers have significant latitude in the placement of advertisements on available inventory, both for run-of-site CPM campaigns and for CPC/CPA campaigns, no automated system for optimizing these placements has previously existed. Publishers have estimated or guessed the efficacy of different advertising campaigns, made assignments of campaigns to locations, and then later reassess their success. The process requires significant manual analysis, manual adjustment of placements, and guesswork to meet contractual requirements.